UK not immune from new EU rules

European ministers have warned that the City of London is not shielded by British Prime Minister
David Cameron
’s veto of the Brussels summit proposals and have vowed to impose tough financial regulations on Britain anyway.

Amid chaotic confusion over the relevance of the Brussels summit, including Britain’s veto, the EU’s economic affairs commissioner, Olli Rehn, said: “If Britain’s move was intended to prevent bankers and financial corporations of the City from being regulated, that’s not going to happen.

“We must all draw the lessons from the ongoing crisis and help to solve it – and this goes for the financial sector as well."

But French President
Nicolas Sarkozy
said Britain’s effort to protect its financial services sector would create a lasting rift.

Mr Sarkozy told Le Monde: “There are now clearly two Europes. One wants more solidarity between its members and more regulation. The other is attached only to the logic of the single market."

Traders were far more concerned that another “make or break" summit had passed without solutions to the raging debt crisis.

European stocks fell sharply as financiers braced themselves for yet more volatility.

Italy managed to raise €7 billion ($9.2 billion) in a bond auction of one-year bills – but only after paying 5.95 per cent, down from 6.09 per cent last month but still unsustainably expensive.

“They therefore do not change Moody’s previously expressed view that the crisis is in a critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain," the agency said. “While Moody’s central scenario remains that the euro area will be preserved without further widespread defaults, the shocks that are likely to materialise even under this ‘positive’ scenario carry negative rating implications in the coming months."

Standard & Poor’s warned that “time is running out" for European leaders to agree concrete fiscal and monetary measures. An exasperated Jean-Michel Six, the chief economist at S&P, reckoned that only another banking crisis would “shock" European leaders into agreeing to proper resolutions.

He said: “There is probably yet another shock required before everyone in Europe reads from the same page, for instance a major German bank experiencing difficulties in the market. Then there would be a recognition that everyone is on the same boat and even German institutions can be affected by this contagion."

Britain used its veto after European leaders refused to offer guarantees to safeguard the City. The other European leaders agreed to push for a new “fiscal compact"; to allow the two bailout funds, the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM) to work side by side; and the intention to extend bilateral loans to the IMF to help with the crisis.

Analysts at Deutsche Bank described the scheme as “decent" and said: “If the Europeans deliver on the €200 billion they are considering for the IMF and also lift the ceiling on the [rescue funds] EFSF/ESM lending capacity, the firepower to deal with the sovereign crisis would become very decent. It is still a fragile framework, and a lot could derail it, but it is nonetheless progress."

Citigroup economists added: “An interesting development is that the ECB emerged with a new role in fighting the crisis as it agreed to take charge of running market operations for the eurozone’s EFSF and ESM bail-out funds."

As a result, Europeans argued that Britain had been foolish to exit itself from the rescue talks. Jean-Pierre Jouyet, head of France’s AMF regulatory agency, said: “The English right has shown it is capable of being the world’s stupidest, in serving purely financial interests and not the national interest."